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New Zealand's Dairy Exports to China Were Down 33% in October


by Lee Mielke

Published: Friday, December 2, 2022

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

New Zealand milk production data released last week shows milk solids production was slightly better than expected, according to StoneX, down 2.9% from year-ago levels in October. "Five months through the season, season-to-date milk solids production is currently down 3.5% from last year. The pasture growth index has fallen from the 5-year average levels it was at in October, and moved much lower in November. That index is now just above the 2021-22 season levels and much lower than the average levels seen over the last five years."

Meanwhile, October New Zealand exports were only up 1.8% from last year, according to StoneX, which was much weaker than the plus 17.3% they forecast. The weak exports were mostly due to China, explains StoneX. "Volumes to China were down 33% from year ago in October, which bring the total volume over the last 12 months at down 21%. This would suggest that Chinese imports for November fell after stabilizing in September and October," suggests StoneX.

Speaking of China, there were a few more pluses in its latest dairy import data but sizable losses on milk powder imports for October. Whole milk powder totaled 59.8 million pounds, down 16.8% from October 2021, although imports were up 5% from New Zealand, according to HGD analysis.

Skim milk powder totaled 49.2 million pounds, down 31.7%, lowest in three years for the month with a strong reduction from the EU, primarily France, says HGD.

Whey imports were up 11.9%, totaling 123.3 million pounds, with notable growth from the U.S., says HGD, up 25%, and accounted for a 52% market share.

Butter imports totaled 13.7 million pounds, up 16.6%, although anhydrous milkfat, at 8.7 million pounds, was up 272%.

Cheese amounted to 21.6 million pounds, up 23.2%, and infant formula totaled 55.4 million pounds, up 20.6% from a year ago.

"As total dairy imports continue to fall on a volume basis, China continued to pay higher prices into October, increasing 12% in U.S. dollar terms and 26% in local currency from a year ago," according to HGD.

The Agriculture Department announced the final federal order Class I base milk price of the year at $22.58 per hundredweight, down $1.51 from November but $3.41 above December 2021, and the lowest Class I since February. It equates to $1.94 per gallon, up from $1.65 a year ago. The Class I average for 2022 is $23.66, up from $16.83 a year ago and $16.91 in 2020.

Speaking of fluid, after showing a small gain in August, September fluid sales returned to their normal decline. The latest data shows sales of packaged fluid products totaled 3.58 billion pounds, down 2.4% from September 2021. Conventional product sales totaled 3.3 billion pounds, down 2.7% from a year ago. Organic products, at 238 million, were up 1.1%, and 6.6% of total sales for the month.

Whole milk sales totaled 1.2 billion pounds, up .7% from a year ago, up 1.1% year to date, and represented 34.1% of total milk sales YTD.

Skim milk sales, at 183 million pounds, were down 9.6% from a year ago and down 8.6% YTD.

Total packaged fluid sales for the nine months amounted to 32.1 billion pounds, down 2.2% from 2021. Conventional product sales totaled 30 billion pounds, down 2.3%. Organic products, at 2.1 billion, were down 1.2%, and represented 6.7% of total milk sales for the period.

You'll recall that two weeks ago the Agriculture Department issued a pre-solicitation announcement to purchase a variety of protein items to "support activities feeding kids and families." Product included dairy, meat and poultry items, with a price tag of nearly $1 billion.

The initial solicitation, announced Nov. 18, was much smaller than expected, says HighGround Dairy, with USDA seeking to purchase just 1.6 million pounds of natural cheese and 554,000 pounds of processed cheese. Bids are due on Dec. 1, with a delivery time frame of April through September 2023. A fluid milk solicitation will be released later, according to the USDA, however HGD deemed the announcement as bearish towards cheese prices.

Dairy producers are heading into next year with unusually light protection against declines in milk revenue, according to the Nov. 18 Daily Dairy Report. The DDR said, "About 25% of national milk output is protected from lower margins through USDA's Dairy Margin Coverage (DMC) program, which pays dairy producers when national average milk prices are too low to cover national average feed costs plus other expenses. Because only 5 million pounds of annual milk output is eligible for the DMC's government subsidy, most dairy producers will purchase DMC protection to cover annual production from about 200 cows. For small farms, that is enough," the DDR stated, "but dairy producers with medium and large herds will need to explore other options for most of their milk."

"Producers have a three-year history of protecting roughly 25% of U.S. milk output through the Dairy Revenue Protection (DRP) program. This program allows them to buy floors under the quarterly average of Class III, Class IV, or dairy component prices at values up to 95% of the futures market. The government underwrites between 44% and 55% of the cost," the DDR stated.

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